Back on March 4, 2010, I made a post here that identified 606 US Multinational Corps that had unremitted foreign earnings exceeding $50 mil each, that totaled $1.263 trillion. This information was taken from income tax footnotes in SEC filings for companies with fiscal year ends of January 2010 or earlier. A very high percentage of these companies have December 2009 year ends.
Further in this March 4, 2010 post, I pointed out that this $1.263 trillion was just for companies that disclosed these amounts of unremitted foreign earnings and that my best guess was that the total unremitted foreign earnings for all companies was $1.6 trillion. I then projected what the total unremitted foreign earnings for all companies would be at the end of 2016, the end of President Obama’s second term, assuming nothing changed and the past trend continued. From a past sample, I concluded that the average annual growth of unremitted foreign earnings was 16.4%, and thus this $1.6 trillion would turn into $4.6 trillion by the end of 2016.
What has happened since then? Well, there have been 13 US Multinational Corps with unremitted foreign earnings of at least $2 bil, that have filed with the SEC for their fiscal year ends of March 2010 through July 2010. For these 13 companies, the total unremitted foreign earnings were $149.7 bil, up an incredible 32.8% above the comparable amount one year earlier.
Yeah, that’s right, the annual growth of total unremitted foreign earnings for these 13 companies of 32.8% was precisely double the 16.4% average annual growth assumption I used earlier. When you double an already high average annual growth rate of 16.4%, the number, when compounded over many years, goes to the moon. Just to show the math here, if you use an average annual growth rate of 32.8%, the $1.6 trillion grows to an amazing $11.7 trillion by the end of 2016, rather than the $4.6 trillion when using my previous 16.4% annual average growth rate assumption.
Let me show the details of these 13 large US Multinational Corps, with fiscal years ends from March 2010 to July 2010:
…………………….Unremitted Foreign Earnings at Fiscal Year End
…………………………......2010…..2009…..2008…..2007…..2006….
………………………………….......In billions of dollars……………
Cisco Systems…………....31.6…….24.1…..21.9…...16.3…….11.1
Procter & Gamble……....30.0……25.0…..21.0…...17.0……16.0
Microsoft…….................29.5…...18.0…….7.5…....6.1……...0.5
Oracle……......................13.0….....8.9…….7.2…....5.7……...3.0
Medtronic……................12.4….....9.7…….8.3…....6.6……...5.4
News Corp…....................6.8….....5.3…….6.9…....5.0……...5.0
Archer Daniels Midland...6.6….....6.0…….4.9…....3.6……...2.2
Forest Labs......................4.1….....3.4…….2.3…....1.6……...1.0
Western Digital................4.0….....2.5…….2.2…....1.1……...0.8
Heinz…............................3.7….....3.3…….3.3…....3.1……...2.5
Nike…..............................3.6….....2.6…….1.8…....1.2……...0.9
McKesson........................2.3….....1.8…….1.5…....1.1……...0.8
General Mills....................2.1….....2.1…….2.2…....1.5……...1.0
Total 13 Companies…...149.7…..112.7….91.0…..69.9…….50.2
Annual % Growth……...32.8%....23.8%...30.2%...39.2%
It's pretty clear to me that the substantial offshoring of US jobs by large US multinational corps is the main reason for the US unemployment and US underemployment rates being so incredibly high, the main reason for the real US GDP growth being so tepid, and also one of the main reasons the US Federal Deficit is so large. And this horrible present economic environment is when the total Unremitted Foreign Earnings is $1.6 trillion. If this total spikes up to $4.6 trillion by the end of 2016, people will be saying that the really good economic times for the US were in 2010! And if this total explodes upwardly to $11.7 trillion by the end of 2016, the country and the majority of its citizens will be facing a financial catastrophe. The only winners here would be the Big US Multinational Corps and their stockholders.
President Obama’s economic team now has wise proposals to deal with the very complex financial disaster caused by the massive offshoring of US jobs, and the resultant shifting of both income and real GDP growth overseas, and also the resultant depletion of both the US Federal Treasury and the US middle class. Their plan is to wisely close much of this corporate tax loophole, and use the massive proceeds from this action to spur US economic growth and US job creation.
It's clearly a stroke of genius. How can it get any better than when your funding for US job creation closes corporate tax loopholes that have themselves been a severe drag on the US economy for the entire 2000s Lost Decade?
And the crazy thing here is that there are many in the US Congress who are fighting this tooth and nail. They are more interested in helping their US Big Multinational Corp constituency than they are in helping the US economy grow and desperate US citizens find jobs. Frankly, I think that anyone who doesn't want to head off a total Unremitted Foreign Earnings number in the range of $4.6 trillion to $11.7 trillion by the end of 2016, with the resultant US financial disaster, is being unpatriotic. No one can be that financially naive. And if any of them are that incredibly financially naive, they don't belong in the US Congress.
This is the main reason that it is in the country's best interests to have both the US Senate and the US House in Democratic hands. If not, the chances of turning this horrible US economy around drops dramatically, and the chances of the total Unremitted Foreign Earnings of Big US Multinational Corps continuing to increase dramatically to in the range of $4.6 trillion to $11.7 trillion in six years, with the resultant US financial catastrophe, increases substantially.
I trust the judgment of US citizens. They won't let the US Congress stop the Obama economic team in its plan to wisely stem this massive offshoring of US jobs. I think history will show that Obama’s economic team saved the US economy from a complete financial disaster caused by this massive offshoring of US jobs by Big US Multinational Corps. US Citizens should be very thankful. My hunch is that a lot of the credit here should go to Austan Goolsbee, who is much more than just a theoretical academic economist.
Let me show why US Multinational Corps are so highly incentivized to offshore US jobs. It's not just about lower wages and lower employee benefit costs overseas. Just looking at the above 5 largest companies, below here are the annual foreign tax breaks each has received over the most recent five years. These foreign tax breaks, which directly increase reported earnings, which drives the Corp's stock price, are from the impact of getting foreign tax rates below the US federal statutory corporate income tax rate of 35%:
………………………………….Annual Foreign Tax Breaks…………
…………………………....2010……2009…..2008…...2007…..2006….
…………………………………........In millions of dollars……………....
Microsoft……………….3,027…..1,843…..1,667…..1,025……840
Cisco Systems…………1,817…...1,454…..1,651…...1,211……664
Procter & Gamble…….1,129…..1,023…..1,012……..633…….447
Oracle……………………....672……..673……..569……..580…….426
Medtronic………………...663……..505……..526……...453…….345
Total 5 Companies….7,307…..5,499…...5,425…..3,902…2,722
Annual % Growth…….32.9%......1.4%....39.0%.....43.4%
The reason Fiscal Year End 2009 growth is so low is due to the much lower income due to the horrible global recession in that year.
Now let me focus on the 114 US Multinational Corps that had Unremitted Foreign Earnings of at least $2 bil, which resulted in total Unremitted Foreign Earnings of $1.052 trillion. Of these 114 companies, 13 had information that was either missing in their disclosures or had an unusual disclosed amount. For the remaining 101 companies, here are the total Unremitted Foreign Earnings at the most recent fiscal year end (2009 or 2010) and for the four immediately preceding years, along with their related percentage increase from the immediately preceding year:
2009-2010…..$906.7 bil…..+20.4%
2008-2009…..$753.3 bil…..+21.6%
2007-2008…..$619.6 bil…..+32.4%
2006-2007…..$467.9 bil…..+38.4%
2005-2006…..$338.1 bil
It should also be pointed out that in 2004, the previous Administration and its controlled US Congress, incredibly passed a measure allowing US Multinational Corps to repatriate their foreign earnings with a massive windfall tax-free 85% Dividend Received Deduction for a one-year period. As a result, more than $300 bil of these foreign earnings were repatriated by US Multinational Corps, and yes, a gigantic amount of US federal corporate income tax previously owed by these Corps was forgiven. This has to go down in history as one of the biggest boondoggles of all time. And it substantially added to the 2000s Lost Decade for the US economy.
How many US jobs were created from this $300 bil of foreign earnings repatriation by US Multinational Corps? Well, there were a few companies that added US jobs, but when you combine all companies doing this massive amount of foreign earnings repatriation, you get a net of US jobs lost, rather than a net of US jobs created. I kid you not! No doubt, Big Corp lobbyists are still chuckling about that one.
I think the right thing to do now would be for US voters to do some research and vote against anyone running in the November 2010 election, who voted in 2004 for this Big Multinational Corp forgiveness of US federal corporate income taxes. It's been a while, but I am pretty sure that every Republican in both the US House and the US Senate voted for this 85% Dividend Received Deduction on Foreign Earnings Repatriation. I would be very skeptical of any Republican running now who claims that he is not for this 85% Tax-free Dividend Received Deduction on Foreign Earnings Repatriation when 100% of them voted for it back in 2004. And what this vote did was incentivize US Multinational Corps to do even more offshoring of US jobs. Heck, why not, when I can in all likelihood get 85% of these very low-taxed foreign earnings repatriated to the US tax free.
And then lastly, below here at the end of this post are the Unremitted Foreign Earnings amounts at the most recent fiscal year end for all 114 companies, which had Unremitted Foreign Earnings of at least $2 bil each.
To show how this is so front end loaded, there are only 13 Corps with Unremitted Foreign Earnings above $20 bil each, which comprise a healthy 42% of the total, only 32 Corps with total Unremitted Foreign Earnings above $10 bil each, which comprise a very healthy 68% of the total, and only 56 Corps with total Unremitted Foreign Earnings above $5 bil each, which comprise a substantial 84% of the total Unremitted Foreign Earnings for all 114 companies.
I think I wouldn’t give any Dividend Received Deduction for Repatriating their Foreign Earnings for any of these very large companies with Unremitted Foreign Earnings above a certain level. People a lot smarter than me can determine what the cutoff amount should be here. I would instead focus the incentivized Dividend Received Deductions on the smaller and medium-sized global companies.
I also wouldn't give any huge US Corp above a certain size either a 100% tax writeoff from plant and equipment investments or an annual research tax credit unless it was also 100% funded by some fair measure of additional US taxes owed from foreign earnings repatriation by this same huge US Corp in the same year.
Further, I think I wouldn't let any global US Corp have a US untaxed Unremitted Foreign Earnings amount above a certain level....perhaps some maximum like $20 bil....again, people much smarter than me can determine what a fair cutoff amount would be. And then whenever a company has its Unremitted Foreign Earnings above $20 bil, a foreign earnings repatriation would be automatically triggered for US corporate income tax purposes, with the resultant additional US tax owed. The CBO-scored positive US funding over the next ten years from just this simple provision would be off-the-charts, and should be used to fund immediate US job creation and US Deficit Reduction.
Anyway, here are the Unremitted Foreign Earnings of these 114 companies at the most recent fiscal year end:
1 GE.......................... $84.0 bil
2 Pfizer...................... $42.5 bil
3 Exxon Mobil.......... $42.0 bil
4 JNJ....................... $32.2 bil
5 Cisco..................... $31.6 bil
6 Merck..................... $31.2 bil
7 Procter & Gamble... $30.0 bil
8 Microsoft................. $29.5 bil
9 Citigroup................. $27.3 bil
10 IBM...................... $26.0 bil
11 PepsiCo.................. $21.9 bil
12 Abbott Labs........... $20.6 bil
13 Chevron................. $20.5 bil
14 Coca Cola................ $19.0 bil
15 Schlumberger........ $18.0 bil
16 Bank of America..... $16.7 bil
17 Hewlett Packard..... $16.5 bil
18 Bristol Myers Squibb $16.5 bil
19 Goldman Sachs........ $16.2 bil
20 JP Morgan Chase... $15.7 bil
21 Eli Lilly.................. $15.5 bil
22 Apache.................. $15.3 bil
23 Amgen................... $14.3 bil
24 Tyco Electronics.... $14.0 bil
25 PMI....................... $14.0 bil
26 Walmart................. $13.7 bil
27 Oracle................... $13.0 bil
28 Medtronic.............. $12.4 bil
29 Google................... $12.3 bil
30 DuPont................... $11.3 bil
31 Dell........................ $11.3 bil
32 Intel...................... $10.1 bil
33 Boston Scientific..... $9.4 bil
34 McDonald's............. $9.2 bil
35 Caterpillar.............. $9.0 bil
36 Dow Chemical......... $8.7 bil
37 Qualcomm............. $8.6 bil
38 Alcoa.................... $8.1 bil
39 Xerox.................... $8.0 bil
40 Ebay...................... $7.9 bil
41 Corning.................. $7.3 bil
42 News Corp.............. $6.8 bil
43 Baxter.................... $6.8 bil
44 American Express...... $6.6 bil
45 Archer Daniels Midland $6.6 bil
46 Danaher................... $6.5 bil
47 Ingersoll-Rand......... $6.0 bil
48 Kimberly Clark......... $5.8 bil
49 Kraft......................... $5.7 bil
50 Illinois Tool Works.... $5.7 bil
51 3M............................ $5.6 bil
52 Occidental Petroleum. $5.5 bil
53 General Motors.......... $5.5 bil
54 Praxair...................... $5.3 bil
55 Honeywell.................. $5.1 bil
56 Apple......................... $5.1 bil
57 Eaton......................... $4.9 bil
58 Emerson Electric......... $4.3 bil
59 EMC............................ $4.3 bil
60 Bunge.......................... $4.2 bil
61 Valero Energy.............. $4.1 bil
62 Forest Labs.................. $4.1 bil
63 Western Digital............. $4.0 bil
64 Murphy Oil................... $4.0 bil
65 Morgan Stanley............ $4.0 bil
66 Johnson Controls......... $3.8 bil
67 Berkshire Hathaway..... $3.8 bil
68 Heinz........................... $3.7 bil
69 Nike............................. $3.6 bil
70 Mattel.......................... $3.5 bil
71 International Paper....... $3.5 bil
72 Monsanto..................... $3.4 bil
73 Hess............................. $3.4 bil
74 Franklin Resources........ $3.4 bil
75 Thermo Fisher Scientific $3.2 bil
76 Stryker.......................... $3.2 bil
77 Gilead Sciences.............. $3.2 bil
78 Texas Instruments.......... $3.1 bil
79 Paccar........................... $3.1 bil
80 Marsh & McLennan......... $3.1 bil
81 EOG Resources................ $3.0 bil
82 CBS................................. $3.0 bil
83 Air Products & Chemicals $3.0 bil
84 Agilent Technologies....... $3.0 bil
85 US Steel........................... $2.9 bil
86 GMAC.............................. $2.9 bil
87 Colgate Palmolive........... $2.9 bil
88 National Oilwell Varco..... $2.8 bil
89 Goodyear Tire & Rubber... $2.8 bil
90 Celgene............................ $2.8 bil
91 Celanese.......................... $2.8 bil
92 Ensco.............................. $2.6 bil
93 Becton Dickinson............. $2.6 bil
94 TRW Automotive Hldgs.... $2.5 bil
95 Whirlpool........................ $2.4 bil
96 Overseas Shiphldg Grp..... $2.4 bil
97 Motorola........................ $2.4 bil
98 Dole Food Co................... $2.4 bil
99 McKesson....................... $2.3 bil
100 Baker Hughes................. $2.3 bil
101 United Parcel Service..... $2.2 bil
102 Biogen Idec.................... $2.2 bil
103 Avon Products............... $2.2 bil
104 Allergan........................ $2.2 bil
105 General Mills................. $2.1 bil
106 ConcoPhillips................ $2.1 bil
107 Black & Decker................ $2.1 bil
108 Aon................................ $2.1 bil
109 AGCO.............................. $2.1 bil
110 Yahoo............................. $2.0 bil
111 Western Union................. $2.0 bil
112 Pride International.......... $2.0 bil
113 PPG Industries................ $2.0 bil
114 Carefusion....................... $2.0 bil
Total 114 Companies....... $1,051.9 bil
